Burton v. Farinholt

• Decision Date: 28 February 1882
• Citation: 86 N.C. 260
• Court: North Carolina Supreme Court
• Parties: R. O. BURTON, Adm'r, v. L. A. FARINHOLT and others.

86 N.C. 260

R. O. BURTON, Adm'r,

v.L. A. FARINHOLT and others.

Supreme Court of North Carolina.

February Term, 1882.

CIVIL ACTION tried at Fall Term, 1881, of HALIFAX Superior Court, before Gilmer, J.

On the 13th of June, 1866, the late Edward Conigland effected an insurance of five thousand dollars on his life with the Ætna Insurance Company, of Hartford, for the benefit of himself, his executors, administrators and assigns, and procured a policy for the same payable ninety days after notice and proof of death. On the 14th of June, 1877, he made a voluntary assignment of said policy to his three daughters, the defendants Fanny, Annie and Margaret--he being then insolvent and without retaining property sufficient to pay his debts.

In December, 1877, he died intestate leaving surviving him his said three daughters, all minors--the defendant Fanny having since intermarried with the defendant L. A. Farinholt. Since his death the amount due on the policy has been paid to the defendant Hervey as guardian of the said daughters, who, upon the marriage of the said Fanny, paid over to her husband fourteen hundred dollars of the amount.

The combined real and personal estate of said intestate is insufficient to pay his debts, and hence it is necessary to resort to the insurance fund, and the plaintiff, who is his administrator, insists that he has a right to subject so much of that fund as may be needed for the purpose, to the payment of the debts. This is the nature and scope of the action.

The defendants demurred to the complaint and from the judgment overruling the demurrer they appeal.Mr. Thomas N. Hill, for plaintiff .

Messrs. J. B. Batchelor and Day & Zollicoffer, for defendants .

RUFFIN, J.

On the argument here three points have been raised for consideration:

First. Whether the transfer of the policy can be held to be fraudulent as to creditors, upon the mere ground that it was voluntary and without valuable consideration, and that the assignor was at the time insolvent.

Second. Whether the fund derived from the policy can be followed in the hands of the daughters, and subjected to the payment of debts, since the policy was but a chose in action and not itself the subject of execution.

Third. Whether the plaintiff as administrator can maintain this action, or whether he is estopped by the assignment of his intestate.

The court has very decided convictions as to the law upon every question suggested by the demurrer.

The life policy in question was the property of the plaintiff's intestate. As soon as delivered, it vested in him, and like any other chose in action became an integral part of his estate, subject to every rule of property known to the law. Being indebted to a state of clear insolvency at the time of its voluntary assignment to his daughters, his act was fraudulent as to his creditors and void in law, whether made with an intent actually fraudulent or not. It is principle of the common law, as old as the law itself, and upon which the preservation of all property depends, that, except so far as the same may be exempt by positive law, the whole of every man's property shall be devoted to the payment of his debts. He cannot gratuitously give away any part of it, the law meaning that he shall be just to his creditors before he is generous to his family. From the fact that he was at the time insolvent, and that his transfer to his daughters was without valuable consideration, it results, as a conclusion of law, that the assignment was void as to his creditors. As said in Gentry v. Harper, 2 Jones Eq., 177, it is against conscience for debtors to attempt in any way to withdraw property or effects from the payment of debts, and if the courts of law cannot reach the debtor's interest, a court of equity will. True, the constitution of the state (Art. X., § 7) provides that a husband may insure his life for the sole use of his wife and children, and that in case of his death the amount insured shall be paid to them free from the claims of his creditors; and counsel here insist that the assignment of the policy, already procured, to his daughters was in effect the same as if the intestate had taken out a new one professedly for their benefit. But is it so? If taken directly in their names and for their benefit, it would have been, ab initio, their property, and would never have constituted a part of their father's estate, upon the faith of which he could, and perhaps did, obtain credit--and that is the test. If his creditors, when trusting him, relied or had a right to rely upon his life assurance as a source of payment, then the law will not permit them to be disappointed by a free gift of it to another. It will put it into the power of no man to obtain a false credit.

As to the second point, the defendants' counsel insist, that the assignment being of a mere chose in action, which could not be subjected to execution by creditors, the case does not fall within the statute of frauds, and for this they cite Story's Eq., Jur., § 367, where, in defining the English doctrine on the subject, it is said, “that in order to make a voluntary conveyance void as to creditors, either existing or subsequent, it is indispensable that it should convey property which would be liable to be taken in execution for the payment of debts; that the statute of 13th of Elizabeth did not intend to enlarge the remedies of creditors, or to subject any property to execution which was not already, in law or equity, subject to the rights of creditors.”

The author, however, admits that there has been, and still is, a great diversity of opinion on the point, and no one who will take the pains to examine the precedents bearing upon it, can avoid a feeling of surprise at the extent to which that diversity has been allowed to proceed upon a matter of such practical importance.

In the early English adjudications very decided ground was taken in favor of the creditors' right to pursue the choses in action of their debtors, in the hands of fraudulent alienees. Taylor v. Jones, 2 Atkyns, 600; Horn v. Horn, Ambler's Rep., 79. But the later decisions are all clearly the other way, and settle the rule to be as stated in Story.

In Bayard v. Hoffman, 4 Johns., ch. 450, the late learned CHANCELLOR KENT carefully reviewed those recent decisions of the English courts, and the reasoning upon which they proceeded, and did not hesitate to characterize them as having a tendency to encourage fraudulent alienations, and as being injurious to creditors and subversive of justice; and he declares that he should be sorry to see their doctrine become the settled resolution of the...